Everyone loved those chocolate chip cookies you made from Grandma’s secret recipe. They even said you should sell them. For sure, you’d make a ton. So, what do you need to do to start a small food business? Can you make the cookies from home and sell them over the internet? Are there any laws you need to follow? We did the research. Here are the regulations you need to know to start a small food business, preferably from home.
To clarify, when we say small food business, we don’t mean a restaurant or a food truck. They get their own laws. What we mean is a food manufacturing or processing business selling packaged foods to restaurants, supermarkets, or over the internet directly to consumers.
Our website is designed to help small businesses, so we’re going to present this series of articles a little differently. We will still cover the general laws, but we’ll focus more on the exceptions and exemptions for small businesses.
Believe it or not, small businesses typically get a break in business-related laws. These types of laws, including food-related laws, are usually complicated and expensive to follow. But, because governments usually want to encourage people to start small businesses, they write exemptions for small businesses right into these laws.
Lastly, our series will focus on US law. We know we have readers from other parts of the world, so these laws and regulations won’t apply to you. However, you can still read this series for information. Then, you can go to your country’s food-related agencies and ask informed questions to learn what you can do to start your own small food business.
Several Layers of Government Agencies Regulate Food Businesses
In the US, food processing is regulated at the federal level, at the state level, and at the local (city or county) level. The federal regulators have the broadest authority and their rules apply all over the country.
Each state can add its own regulations, but how much it can add depends on whether the federal law allows them to do so. When a state regulation comes into direct conflict with federal regulation, then the federal regulation always wins. Lastly, at the local level, there are usually zoning or health laws that may apply to food processors.
How Responsibilities are Divided at the Federal, State, and Local Levels
The main federal agency that regulates food processing is the Federal Drug Administration (FDA). But, and generally speaking, if the food contains meat or poultry, then the US Department of Agriculture (USDA) regulates that food.
At the state level, often, a food processor must get a permit or license with the state before they can start a food business. The state works with the FDA and USDA to approve the design and cleanliness of the processing facility. In fact, many of the states’ requirements are the same as the FDA and USDA requirements. Some state inspectors can even inspect for the state, the FDA, and the USDA. (Same person, different hats.)
Finally, local health departments are also responsible for health inspections similar to those they give to restaurants. They’re also responsible for zoning laws, so they often decide where you can and cannot locate a food processing facility.
Sometimes, this means a food processing business can be inspected by the FDA, the USDA, the state, and local agencies all at the same time. It all depends on the types of food you make.
How Responsibilities are Divided by Type of Food and Type of Inspection
US food regulations can get very complicated, very fast. Some of what these agencies are responsible for are not straightforwardly logical. Generally speaking, though, here are some examples of what each federal and state agencies do.
The FDA
The FDA has most of the responsibility for regulating people food (and pet food, nutritional supplements for people, and drugs). The law that gives the FDA most of its food regulatory powers is called the Food Safety Modernization Act (FSMA). If you’re successful in your food startup, sooner or later, you’ll have to work with the FDA (unless you work only with the USDA).
Some examples of what the FDA is responsible for include:
- Registering food facilities once they reach a certain size
- Inspecting the cleanliness of food facilities at their discretion
- Requiring and making rules on food labeling, including the Nutrition Facts label
- Making sure a food processor uses good manufacturing practices (they have a guide called Current Good Manufacturing Practices (CGMPs))
- Making sure a food processor uses a system to control food safety called the Hazard Analysis and Critical Control Points (HACCP)
- Requiring a food processor to have a recall plan
- Helping state and other local authorities to ensure food safety in the US
Note that the FDA does not approve food labels. But they will help and give guidance to labels that you plan to use.
Here’s our detailed article on how a small food business can navigate labeling laws and other FDA rules and exemptions.
FDA Rules Every Small Food Startup Should Know
The USDA
The USDA is responsible for regulating agricultural and farm-related items. Because meat and poultry are farm animals, they fall under USDA’s responsibility. The USDA is also responsible for regulating fruits and vegetables related matters, but these rules do not affect food processors directly, so we won’t cover them here.
Some examples of what the USDA is responsible for include:
- Makes sure a food processor uses HACCP for meat and poultry processing facilities, including slaughterhouses
- Makes sure a food processor uses CGMPs for meat and poultry processing facilities
- Registering meat and poultry processing plants
- Through its Food Safety and Inspection Service (FSIS), inspects meat and poultry food processing facilities
- Makes rules for, approve, and enforce labels for meat and poultry products inspected by the USDA (note that the USDA approves labels whereas the FDA does not)
- Work with state and local agencies to ensure meat and poultry food safety in the US
Between the USDA and FDA, the USDA inspects plants more often, sometimes every day. Meat and poultry are more prone to bacterial and other contamination, so it makes sense that the USDA would be more stringent in their inspections.
Here’s our article on how a small food business can navigate through USDA regulations.
USDA Rules Every Small Food Manufacturer Should Know
State Agencies
Usually, a state’s health or agriculture agency is responsible for regulating food. If you sell only inside the state, often, you’ll have to follow only the state’s rules. Usually, a state will have something called a Cottage Food Law that allows you to make and sell certain types of food from your home kitchen.
Here’s our detailed article on cottage food laws, including some example laws for the four most populous states:
Starting a Home-Based Food Business Under State Cottage Food Laws
If your product contains meat or poultry (and in some states fresh fruits or vegetables) or if you want to make health claims (e.g., low calories), then you cannot sell under the cottage food laws. Instead, you’ll have to follow FDA or USDA rules. Nutrition supplements also do not fall under cottage food laws.
State agencies usually work with the FDA and USDA to help small businesses to set up a facility to make foods that fall outside of cottage food laws. If you’re inspected by the state instead of the FDA or USDA, you’ll only be able to sell within your state.
Local Agencies
Your local agencies—city or county agencies—often also regulate food processing facilities. They’re responsible for zoning laws, so they can tell you where you can and cannot set up your facility. They’re also responsible for health inspections like the ones for restaurants.
You might need other types of permits (e.g. certificate of occupancy) from local agencies too, before you can open for business.
Exemptions for Small Food Businesses
We hope you do read our articles linked above, where we talk in detail about the small food business exemptions from various government agencies. However, to cut to the chase, we list below the big FDA and USDA exemptions.
FDA $50,000 Gross Annual Sales Exemptions
Below this $50,000 gross annual sales number, you’ll find a lot of exemptions designed for very small businesses trying to break into the food processing industry. For instance, if you make below $50,000 in annual sales, the FDA typically doesn’t regulate you. Instead, you can run your business from a home kitchen under your state’s cottage food law. You’ll also be exempt from FDA’s Nutrition Labeling requirements and inspections.
If you process above $50,000 in annual sales, you might be able to take advantage of other FDA small business exemptions. Again, we discuss these exemptions in our detailed FDA article.
USDA Small and Very Small Businesses Exemptions
If you’re inspected by the USDA, there are other numbers you should know. First, there’s the 500 employees and 100,000 lbs. of meat processed number. If you’re below this, then you won’t have to include a Nutrition Facts label (but you do have to follow other USDA labeling rules).
See our detailed USDA article for other small food business exemptions.
Other Small Business Exemptions
Once you hit the $50,000 cutoff for FDA or the 500 employees/100,000 lbs. cutoff for USDA, there are other small business exemptions that may apply to you. Unfortunately, small business and very small business often have different definitions, depending on which regulation you’re looking at.
So, always check each regulation to see if your small food business is completely or partially exempt from the requirements. Be careful, though, because sometimes availing yourself to these exemptions means you can only do business in your home state.
Exemptions Can Help You Start a Small Food Business, but Use the Savings Wisely to Grow
There are a lot of great cooks and bakers out there. Once in a while, someone will be tempted to start a small food business based on their talents. But starting this type of business is not always easy because of all the health and sanitation laws. Still, if you decide to go into the food processing industry, know that you’ll get exemptions in the law along the way.
But, if your food business is successful, it’s not hard to run out of exemptions—especially the $50,000 exemption. When you hit that limit, you’ve probably just gathered enough data to know which of your products is a hit. You’ve also probably just made enough money to get good packaging and maybe laboratory testing or other help to satisfy the next-level food labeling requirements.
The income stream might be enough to help you get a business loan to expand. You’ll have enough confidence in your product to sign a multi-year lease for a commercial kitchen. And maybe you’ll be confident enough to quit your day job to go full time.
In other words, these small food business exemptions only give you a beginning, instead of an ending.
So, use your small food business exemptions wisely. Don’t blow it on things that can wait. Instead, plan ahead and spend it on what you’ll need when you grow out of the exemptions. Building a food business isn’t easy, but that’s true for building any business. But if you have a truly great product that people like, you might find the time and effort to be worth it.
Next Up…
Our next blog is on a related subject: how to start a pet food or pet treat business.
DISCLAIMER: This article does not constitute legal or accounting advice. Instead, it contains general information. The information gives you the background you’ll need to hit the ground running when you do go get advice from a lawyer or accountant. Only lawyers and accountants properly licensed in your state/country are qualified to give you legal or accounting advice.
Questions? Comments?
